Are there fees involved when selling a property with an outstanding mortgage?

The overall cost of selling a mortgaged property depends on your lender’s terms, the type of property and the legal work required. Some charges are unavoidable, while others arise only in particular circumstances, such as ending a fixed-rate deal early, selling a leasehold property or correcting a title problem.

Your lender will calculate the amount needed to clear the mortgage on completion. This can include interest accrued up to the repayment date and any contractual exit or discharge charge. If completion is delayed, the amount may change, so your conveyancer should confirm the final figure with the lender before the sale completes.

An early repayment charge is usually the most significant mortgage-related cost where it applies. It may be triggered when a fixed-rate, discounted or tracker period ends early, although the terms vary between lenders. Check whether the charge reduces over time, whether a permitted overpayment allowance applies, and whether porting the mortgage to another property could avoid it. Porting is subject to the lender’s criteria and does not necessarily remove all costs.

Legal costs can include the conveyancer’s fee and VAT, together with separate disbursements. The work commonly covers checking title, replying to the buyer’s legal enquiries, preparing the contract, dealing with the lender and transferring the repayment money on completion. Ask for a quote that distinguishes the professional fee from third-party costs and identifies charges that would arise if the transaction falls through.

Additional expenses may arise from the property itself. Examples include:

• Leasehold management information, a notice of transfer, a notice of charge or a deed of covenant, where required by the lease or managing agent.
• Resolving a restriction, missing document, boundary issue or other title defect, potentially including an indemnity policy or extra legal work.
• Obtaining an energy performance certificate or replacing missing compliance documents where these are needed for the sale.
• Clearing service-charge or ground-rent arrears, or settling other sums recorded against the property.
• Professional reports or remedial work requested because of a structural, damp, planning or building-regulation concern.

Leasehold sellers should request the management company’s schedule of charges early. The cost of a management pack and the time needed to supply it are controlled by the relevant lease or managing agent, not by the mortgage lender, and the seller normally needs to establish who is responsible for payment.

Tax is separate from the cost of repaying the mortgage. Selling a main residence may fall within the rules for Private Residence Relief, but a potential Capital Gains Tax liability can arise where the property has been let, used partly for business, inherited or was not your only or main residence for the whole period. Mortgage interest and selling costs can affect the calculation, so obtain advice based on your circumstances rather than assuming the sale proceeds are all tax-free.

If the property is worth less than the amount needed to clear the mortgage and associated costs, the sale may create a shortfall. The lender will normally need to agree how that shortfall will be dealt with before completion; a sale cannot simply proceed on the assumption that the mortgage balance will be written off.

A cash purchase does not automatically remove the seller’s mortgage, conveyancing or property-related costs. Any agreement for a buyer to contribute towards a particular expense should be recorded clearly in the contract and checked by the conveyancer. Before accepting an offer, compare the likely net proceeds by deducting the mortgage settlement figure, contractual charges, legal costs, leasehold or title expenses and any relevant tax from the expected sale price.